SLOVENIA: FALLEN ANGEL OF EX-COMMUNIST EUROPE

In the days of Communist Yugoslavia, Slovenes stood out for being in touch with the West and capable of generating a large proportion of the country’s GDP. Independent since 1991, Slovenia quickly qualified for the European Union, the euro and Schengen.

Yet now it counts with Greece, Cyprus and Spain among the eurozone’s worst financial miscreants. Its main state-owned banks are in dire need of bailouts. As auditors pick through the books, they discover loan after reckless loan for dud projects run by political cronies and personal business friends, secured by precious little.

Governance of the banks is revealed as irresponsible, slack and amateurish. Even the Catholic Church is saddled with large bankrupt businesses which are anything but spiritual. Pope Francis has removed the Archbishop of Ljubljana and the Bishop of Maribor. So much for Slovenes’ reputation for economic competence.

Now the government is starting to bail out the banks. Eager to cling to the independence gained only in 1991, it refused to apply for a bailout from the EU and the IMF, which would have meant foreign supervision. In order to preserve a minimum of international credibility, it reluctantly brought in foreign consultants to inspect the books.

As a result, it embarrassingly turns out that the government needs to put in 4.8 billion euro, four times the amount it originally calculated.

Moreover, EU rules on state aid oblige it to sell its number two and three banks, as well as 75% of the largest. The best hope that the Slovenian Central Bank governor could voice was that foreign buyers (there are no domestic candidates) will sort out the governance mess.

Slovenia has escaped bailout tutelage by the EU and the IMF, but the cost of going it alone will be huge for the Slovene people.

In hindsight, it is clear Slovenes were too complacent because of their success in Communist Yugoslavia. Their capabilities proved inadequate for an open modern economy. Whereas Poland privatised quickly in the earlier 1990s – and got through the recent financial crisis unscathed – in Slovenia, the state still owns half the economy.

So anxious were Slovenes to preserve their independence that they did their utmost to keep out foreign investors. This can now be seen as a damaging fantasy.

One exception is Lek, one of the country’s largest companies, which was bought by Novartis. Its procedures were radically overhauled at the insistence of the Swiss. Now it is solidly implanted in the group as a leading producer of generic pharmaceuticals. At a time when Slovenia’s GDP is falling precipitously, Lek is hiring not firing.

Moral number 1: ex-Communist states of Eastern Europe, even Slovenia, underestimated how much they need to change to adapt to the modern world.

Moral number 2: Slovenia now needs the national unity which won it independence in a 10-day war in 1991. In view of the vicious infighting which pervades its politics, this however seems unlikely.

Its outlook unfortunately is grim.

– Marcus Ferrar is co-author (with John Corsellis) of Slovenia 1945: Memories of Death And Survival After World War II.